The ramifications of Steve Rattner’s involvement in the New York kickback scandal have finally extended beyond the private equity world–this one goes “all the way to the top,” as they say.
As I try to wrap my mind around the potential ramifications of this development, I thought I’d share my list of who exactly Rattner’s involvement, if proven, affects.
Quadrangle Funds – This will surely affect the upcoming key-man vote on Quadrangle’s second fund, a $2 billion pool closed in 2005. It had about 25% left to be deployed, and investors have had the option to rescind their remaining commitment since Rattner left his post at Quadrangle to be Obama’s “car czar.” Granted, the structure of the firm’s key man provision is very favorable to Quadrangle (it requires LPs to proactively request a change in the limited partnership agreement, rather than automatically re-write the terms, as most funds do). But, with the deadline to vote on the key man provision looming, investors probably aren’t too happy to learn a Quadrangle portfolio company that’s now bankrupt had provided bribe money for a commitment. And of course, Quadrangle’s latest third fund has already suspended fundraising.
Auto Industry – Yep, Rattner left because he was appointed as a counselor to Treasury Secretary Tim Geithner. His role is to lead the Obama administration’s restructuring of the auto industry. Surely, having an accused cheater at the helm doesn’t do a lot for the faith in that arena.
Private Equity industry – I mentioned this yesterday. Even though it’s entirely different than the various Ponzi schemes that have come to light, with this news in the mainstream, it won’t be difficult for the average NY Times reader to draw a line between private equity and Ponzi. Of course, Nassim Nicholas Taleb isn’t helping either.
Placement agent industry – This scandal already had us scratching our heads as to whether placement agents, who some could argue get paid a “finders fee” for their connections, need more regulation. Now that it’s expanded beyond our little private equity world, I’m guessing the service will receive even more scrutiny.
Obama Administration – Regardless of whether this situation should be politicized, it will be. It doesn’t help that Rattner’s ethical lapse follows issues with Gov. Bill Richardson’s alleged pay-for-play schemes, and tax issues with Treasury Secretary Tim Geithner and Head of Health and Human Services appointee Tom Daschle, whose bid for the position was withdrawn.
Pension Funds Investment Officers – Maybe investment officers at public pension funds will actually get paid comparable salaries to the Wall Street guys across the table. On the other hand, maybe after this banking crisis and the raising of carried interest tax, their salaries will look comparable to the Wall Street guys across the table.
Steven “Chooch” Rattner: Regardless of whether he is proven to be guilty, it may be tough to shake the nickname he’s earned from blogs like Jalopnik. Who knew a little movie called “Chooch” would make this much of a splash in the business world? Then again, a little movie called “Chooch” would have never even been made if not for a shady pay-for-play scheme.